martes, 4 de abril de 2017

For Trump, NAFTA Could Be the Next Obamacare

In his apocalyptic campaign speeches, Donald Trump routinely cited two catastrophic messes he would clean up as president: Obamacare and NAFTA. Then his push to undo Obamacare became his first policy fiasco in the White House.

Now Trump may be poised to repeat history with NAFTA.

Health care and trade don’t have much in common beyond complexity and political sensitivity. But there are striking similarities between Trump’s approach to Obamacare and his approach to the North American Free Trade Agreement, the 23-year-old pact with Mexico and Canada that he’s called the worst trade deal in history. The parallels include his over-the-top dystopian attacks on their disastrous stupidity, his over-the-top utopian pledges to replace them with a terrific alternative to be named later, and his blithe confidence that his negotiating partners would give him what he wanted.

The demise of the Republican bill to repeal and replace Obamacare has inspired a lot of mockery about “the closer,” about Trump’s inability to flex his “Art of the Deal” negotiating muscles in the Washington arena. But the failure of Trumpcare was mostly a failure of substance, not tactics. It was doomed not by Trump’s incendiary tweets or tone-deaf demands but by the impossibility of reconciling his exuberant promises with real-world plans, as well as his inability to compel cooperation or compliance from people who don’t work for him.

Ever since the Republican health care bill cratered, Trump’s aides have been strategizing about how to avoid a similar debacle in the future. But a close look at the politics and the details suggests that NAFTA talks could easily turn into Trumpcare 2.0. Like Obamacare, NAFTA is an imperfect deal, but not the unmitigated disaster that Trump pretends it is—and, as with Obamacare, any fix would involve difficult trade-offs through a painstaking process that would create winners and losers. It’s another issue where there’s no way for the president to wave a wand and make everyone happy, especially when so many people like the status quo.

In fact, a major overhaul of NAFTA could prove to be even more elusive than the repeal of Obamacare. Congressional Republicans scuttled repeal even though they all opposed Obamacare—and most of them do not oppose NAFTA. Even more daunting, before Trump even tries to sell Republicans on an improved NAFTA deal, he’ll have to forge that deal with Canada and Mexico. And it’s hard to imagine why Mexican President Enrique Peña Nieto would risk the wrath of his people by granting concessions to the American politician who called them rapists and demanded a border wall to keep them out of the U.S.

Last week, a draft surfaced of the Trump administration’s letter to Congress laying out its goals for renegotiating NAFTA, featuring a much more measured tone than Trump used while blasting trade deals on the campaign trail. That doesn’t mean he’s abandoned his contentious approach to trade. The letter carefully left his options open, and when he signed two symbolic trade-skeptical executive orders last Friday, he echoed some of his campaign bombast about foreign negotiators fleecing dumb Americans. Still, when the NAFTA venue shifts from public proclamations to backroom negotiations, Trump might struggle to achieve even modest progress for U.S. businesses and workers, much less the fantastic victories he’s promised.

***

As a guide to why NAFTA will be so hard to renegotiate, the administration’s draft letter to Congress is a good place to start. The letter, written by acting U.S. Trade Representative Stephen Vaughn, includes a historical summary of NAFTA that’s typical for that kind of official notification. But its boilerplate language about the effects of the deal—what happened after the U.S., Canada and Mexico agreed to eliminate all tariffs and duties on one another’s goods—is remarkable given the president’s portrayal of the deal as a colossal blunder.

“Since 1993, U.S. trade with Canada and Mexico has more than tripled,” the letter says. “The two countries account for 29 percent of total U.S. goods trade, and are among the largest export markets for manufacturing, the first and third largest markets for agricultural goods, and the second and third largest sources of imports.”

That doesn’t sound like a ringing case for repeal. It sounds more like what NAFTA was supposed to do when it was started under President Ronald Reagan, negotiated under President George H.W. Bush, and ratified under President Bill Clinton. And that’s why so many U.S. farmers, retailers and manufacturers like it so much. The U.S. already had relatively low tariffs in the 1990s, so NAFTA helped open up new markets to the north and south for farmers and other exporters, while reducing prices for importers who could then pass savings on to consumers. It also created a vibrant North American manufacturing supply chain where auto parts zip back and forth across borders as they’re assembled into truly North American cars that can compete globally. It’s true that some U.S. factories and jobs have moved to Mexico, but there’s been a worldwide shift of lower-cost production toward lower-wage countries, and it’s not clear how much trade deals have accelerated that globalization. In any case, U.S. manufacturing output is now at an all-time high.

So Trump’s hyperbole about the sheer insanity of NAFTA could create expectations problems as well as reality problems as he seeks to renegotiate it. And those problems should be familiar at this point in his presidency, because he encountered them after similar hyperbole about Obamacare.

Trump constantly trashes Obamacare as a nightmare for everyone it touches, but it’s working quite well for the vast majority of Americans who get insurance through their employers, Medicare or Medicaid, and even for most Americans insured through the law’s troubled exchanges. Overall, Obamacare has expanded coverage to 20 million uninsured Americans, created powerful new protections for insured Americans, shifted the incentives of the health care system toward rewarding quality, and helped reduce the growth of medical costs to the lowest level in half a century. There have been real problems with rising premiums and fleeing insurers on the exchanges—the marketplaces where individuals can comparison-shop for policies—and those problems have gotten worse since Trump’s election (and some official sabotage) has thrown the future of the exchanges in doubt. But those problems affect only 3 percent of Americans—and most of them receive Obamacare subsidies that protect them from premium hikes.

Trump has always ignored these facts in his speeches. But they complicated his effort to abolish Obamacare while fulfilling his pledges to “increase access, lower costs, and provide better health care,” which were all things that Obamacare was already doing. The Republican repeal bill was wildly unpopular, in part because it included massive Medicaid cuts in order to finance a massive tax cut for the wealthy, but any bill that reversed Obamacare’s coverage expansions and insurance protections would have stripped away some benefits that Americans like—and any bill that didn’t would have alienated conservative Republicans. For all the furor over Trump’s futile efforts to get his party to fall in line, his basic challenge was that Obamacare wasn’t really horrific, and his sugary promises to replace it with something awesome for everyone weren’t really realistic.

The administration’s draft letter on renegotiating NAFTA reflects similar challenges. For example, Trump has complained that one of the biggest deficiencies of the deal is its failure to address currency issues, but not one of the letter’s 49 goals for improving it mentions currency issues. There was also nothing about requiring the new NAFTA to reduce U.S. trade deficits, something White House trade adviser Peter Navarro had suggested would be necessary in any U.S. trade deal.

Instead, the letter suggests that the overarching purpose of the renegotiations should merely be modernizing NAFTA to deal with issues that didn’t exist when it went into effect, and strengthening it to reflect the standards in more recent U.S. trade deals. “For example, digital trade was in its infancy in 1994,” the letter says. “Labor and environment were an afterthought to the Agreement.” The eight-page draft also cites intellectual property rights, state-owned enterprises, and trade in services as areas where NAFTA ought to be updated to reflect 21st-century realities.

Well, guess what? After years of intense negotiations, the Obama administration already finalized a deal in which Canada and Mexico accepted new protections for digital trade, tougher labor and environmental safeguards, stronger intellectual property rules, new limits on state-owned enterprises, and freer trade in services like law, consulting, accounting and wealth management where U.S. firms tend to excel. But that deal was the Trans-Pacific Partnership, the Asia-oriented trade agreement that Trump scuttled on his third day in office. Several former Obama aides pointed out that despite Trump’s attacks on TPP as an existential threat to the United States, much of his administration’s list of goals sounded like a rehash of TPP’s achievements.

“A lot of it looks very familiar,” says Wendy Cutler, who oversaw the TPP talks as Obama’s deputy U.S. trade representative.

White House press secretary Sean Spicer said last week that the letter is just a draft and does not reflect current administration policy. But there have been numerous signs that Trump’s aides do not share his view of TPP as an irredeemable mess. Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross have both suggested the concessions that Mexico and Canada made in TPP could be “the starting point” for renegotiating NAFTA. “We’re obviously not going to throw out the baby with the bathwater,” Ross said.

The problem is, Trump may have done just that when he killed TPP. The U.S. did not have to give up much to Canada or Mexico in exchange for those earlier concessions, because Canada and Mexico were eager for increased access to Asian markets through TPP. But that is not something the U.S. can offer through revisions to NAFTA. And the draft letter to Congress suggested the Trump administration will also seek big additional concessions, like a more level playing field on border taxes, a revised dispute settlement process, new “rules of origin” with advantages for U.S. factories, and new advantages for U.S. contractors in government procurement.

Why would Canada or Mexico agree to any of that? Both countries are largely happy with NAFTA as it stands. And it’s not clear what Trump could offer them to sweeten the deal. Canada’s top priority in any renegotiation would probably be a relaxation of “Made in America” rules for U.S. government contracts, but Trump has vowed to make those requirements much more stringent. Mexico has expressed a desire for changes that would make it easier for its citizens to cross the border, but it's hard to square that desire with Trump's demand for an impregnable wall.

Meanwhile, Trump is unpopular in Canada and absolutely reviled in Mexico. Peña Nieto already canceled a meeting with the president after a spat over the border wall, and his left-leaning political opponents are advocating a much more hostile stance against the U.S. Any Mexican leader who cut an unfavorable deal with Trump—or maybe any deal with Trump—would sign his political death warrant, while there could be obvious election-year benefits to rejecting Trump’s demands in a public way. The politics of trade are complicated in the U.S., too, so there’s no assurance that Trump could even get a deal through Congress, but first he’d have to get a deal.

“Trade negotiations only work if the other guy can sell it in his own country,” says Jeffrey Schott, a senior fellow at the trade-friendly Peterson Institute for International Economics. “Mexico is going to have to get something out of this.”

Trump and his aides have suggested that he won’t need to offer any goodies to a weaker country like Mexico. He thinks he’ll be able to dictate the terms of the new deal by threatening to impose new border taxes or even to walk away from NAFTA if his negotiating partners don’t cave, as he often did in the real estate world. And unlike his predecessors, Trump truly seems willing to abandon NAFTA if he can’t refashion it to his liking—the final way this saga could echo the Obamacare saga.

***

Now that the GOP health care bill has cratered, the Trump administration has two basic options for how to proceed. One would be to accept that Obamacare is here to stay and push for tweaks to help stabilize the exchanges and minimize the disruptions to families. The other option would be to sabotage the exchanges, let Obamacare implode, and blame Democrats for the resulting chaos, which Trump keeps saying would be much smarter politics. That’s not necessarily true at a time when Republicans control Washington; if millions of Americans suddenly lost their coverage, they might wonder why the president seemed so eager for that to happen. But regardless of who gets blamed, it could happen, and a lot of Americans could get hurt.

If Trump fails to bully the Mexicans into massive NAFTA concessions, or even a face-saving NAFTA update reinstating the TPP concessions, he will face a similar choice: Muddle through with the status quo, or walk away and blame others for the chaos. Getting a divided Congress to approve a revised NAFTA would be a daunting legislative challenge, but abandoning NAFTA would be quite simple; Trump would just need to give six months’ notice. He would be risking the demolition of North American supply chains, fury from farmers and consumers, a potential trade war, and a potential recession. To add insult to self-inflicted injury, tariffs would revert to their pre-NAFTA levels, which were much higher in Mexico and Canada than in the U.S. So in a sense, threatening to withdraw from the deal would be like pointing a gun at his own head and threatening to shoot.

Again, though, Trump could do it if he were willing to face the consequences. Jeb Bush famously derided him as a “chaos candidate,” and there are certainly signs that he might be a chaos president. At the same time, even though the public keeps voting for political change, it tends to get skittish about policy change, and especially policy chaos. It’s not clear yet how willing Trump will be to risk a backlash.

What is clear is that Trump’s frequent promises to help Americans lose weight by eating ice cream will eventually crash into reality. It’s easy to promise that the next NAFTA will include major Mexican concessions and no Mexican retaliation before the negotiations begin, just as it was easy to promise that Republicans were preparing a wonderful replacement to Obamacare before the plan became public. But just as Trump recently discovered that health care was more complex than he realized, he’ll soon discover that trade deals can be complex, too. Not even superpowers get to dictate the outcomes.

Of course, politics can be even more complex, abroad as well as at home. It's the mechanism countries use to translate the words of their politicians into policies. The words might not mean much when Trump tosses them around in his speeches, but they matter a lot when they’re part of a law like Obamacare or a global agreement like NAFTA. And while candidates get judged by words, presidents get judged by results.